Halifax is winning the current account war, according to figures released last week by the Payments Council. The bank attracted 66,401 new current account customers between 1 October and 31 December last year.
It isn’t hard to see why so many people switched their current account to Halifax. The bank offers new customers £100 when they switch plus £5 a month on their Reward Current Account. In contrast, most of the high street stalwarts offer no interest and very few account benefits.
“Customers are ditching big name banks for challengers with hot offers, or just cleaner reputations,” says Kevin Mountford, head of banking at Moneysupermarket. “The biggest losers are Co-op bank, Barclays and RBS Group, which have been hit by scandal, mis-selling investigations and IT crashes respectively over the past couple of years.”
There can be no doubt that most of us need to switch bank accounts. One of my favourite stats – and one regularly trotted out in the financial pages – is the fact you are more likely to get divorced than split up with your bank. Despite a big push by the Payments Council to advertise how easy it is to switch, most of us still don’t bother: just 600,000 people moved banks in the first half of this year, a tiny percentage of the 50m current accounts open in the UK.
If you haven’t switched current accounts within the past five years, you should. Following the credit crunch many banks were broken up and new smaller banks are keen to build up their customer base. Banks see these accounts as their bait – if you have a current account with them you are far more likely to save and borrow with them too. So, there are plenty of attractive deals out there designed to reel you in.
Halifax offers one of the most enticing lures, but that doesn’t mean it is right for everyone. A good chunk of its new customers probably don’t qualify for the £5-a-month reward, and many are paying the bank rather than earning anything thanks to Halifax’s hefty overdraft charges.
Dip into the red and you’ll be charged a daily £1 fee for an arranged overdraft. If it is unarranged, the fee becomes a painful £5 a day. To get the £5 monthly credit you’ll need to pay in £750 each month, pay out two different direct debits and not go into your overdraft at all.
Rather than comparing the bonuses that the banks are offering when looking at current accounts, it’s better to look at how the account will suit your lifestyle.
If you use an arranged overdraft then Nationwide might be the best bank for you. Its current account has an interest-free overdraft for the first 12 months. Alternatively, First Direct offers all its current account holders a £250 interest-free overdraft that doesn’t have a time limit.
Anyone who tends to keep quite a lot of money in their current account should consider banking with TSB. It offers 5% interest on balances up to £2,000 as long as you pay in at least £500 a month. Santander’s 123 Cashback current account offers three per cent interest on balances between £3,000 and £20,000, as long as you pay in £500 per month and set up at least two direct debits from the account.
Finally, check whether it would be worth your while banking with your mortgage provider: the Santander account offers customers one per cent cashback on Santander mortgage repayments. On a £700 mortgage that matches Halifax’s £5 reward (there is a £2 monthly account fee) plus you earn cashback on a variety of other spending too.
Once you’ve picked the right current account for you, check a cashback website and you could earn money for switching. Right now Quidco has deals worth up to £35 if you switch via its website to a variety of banks.